United States v. McCord

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 93-8548

_____________________

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

MICHAEL McCORD and

O. B. HALEY, SR.,

Defendants-Appellants.

_________________________________________________________________

Appeals from the United States District Court

for the Western District of Texas

(DR-92-CR-78(1))

_________________________________________________________________

(September 26, 1994)

Before POLITZ, Chief Judge, and DUHÉ and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

This appeal principally concerns the convictions of Michael

McCord and O. B. Haley, in connection with their roles as trustees

in funding a bank employee stock ownership plan, for conspiracy to

violate 18 U.S.C. § 1954 (proscribing improper payments to persons,

such as trustees, who influence such plans), to include whether

they satisfied § 1954's "bona fide compensation" exception to

criminal liability. McCord also contests his five other bank-

related convictions and challenges his sentence on several grounds.

We REVERSE McCord's money laundering conviction and REMAND his case

for resentencing; otherwise, we AFFIRM.

I.

In April 1993, as a result of their activities at the American

Bank of Commerce (ABC) in Del Rio, Texas, McCord and Haley were

convicted for conspiring to violate § 1954, by agreeing that Haley,

through his corporation, would give McCord shares of ABC stock

because of McCord's actions and decisions as a trustee of the ABC

employee stock ownership plan (ESOP), in violation of 18 U.S.C. §

371 (count one). Each was acquitted of a substantive violation of

§ 1954 (counts two and three).

As for the several other related charges against McCord (to

include one against his wife), he was acquitted of soliciting

kickbacks, in violation of 18 U.S.C. § 215(a)(2) (count seven,

which charged that he demanded a $5,000 finder's fee from two ABC

customers to secure a buyer for their property); but he was

convicted for filing a false tax return by failing to report the

gain from sales of the stock received from Haley's corporation, in

violation of 26 U.S.C. § 7206(1) (count four).1 Furthermore, as a

result of having ABC pay for the installation of a new air

conditioner at his home and the installation of his used unit at a

house owned by ABC, McCord was convicted for making, or causing to

be made, false entries on bank records, in violation of 18 U.S.C.

§§ 2 and 1005 (count five), and misapplication of bank funds, in

violation of 18 U.S.C. §§ 2 and 656 (count six). Concerning a loan

made by ABC to his brother-in-law, McCord was convicted both for

1

McCord's wife was acquitted on the tax count, the only one in

which she was charged.

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unlawfully receiving part of the proceeds, in violation of 18

U.S.C. § 1005 (count eight), and for money laundering for the

deposit of the proceeds he received, in violation of 18 U.S.C. §

1957 (count nine).

Haley was sentenced, inter alia, to five months imprisonment,

with a recommendation that it be served at a halfway house. McCord

was sentenced, inter alia, to 36 months imprisonment on the tax

count and 37 months on each of the other five counts of conviction,

all to be served concurrently, and ordered, inter alia, to pay

$2,950 restitution (amount of the air conditioner invoice), and to

forfeit $17,000 (proceeds received from the loan to his brother-in-

law).

II.

Haley challenges the denials of his motions for severance and

to dismiss the indictment, the jury charge, and the sufficiency of

the evidence to support his conviction. McCord contests the jury

instructions, sufficiency of the evidence, the money laundering

conviction (on constitutional grounds), and his sentence (on four

bases).

The bulk of the numerous contentions concern the sufficiency

of the evidence. The following analysis of the evidence, and the

proper inferences that can be drawn from it, required in order to

review the sufficiency challenges, amply demonstrates, once again,

why our standard of review for such challenges is so narrow. For

numerous, and most obvious reasons, we do not sit to retry the

charges against Haley and McCord; that is the function of the jury.

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A.

It is the jury's "unique role" to judge the credibility and

evaluate the demeanor of witnesses and to decide how much weight

should be given to their testimony. E.g., United States v. Higdon,

832 F.3d 312, 315 (5th Cir. 1987), cert. denied, 484 U.S. 1075

(1988). Our resulting narrow standard of review for sufficiency of

the evidence challenges "gives full play to the responsibility of

the trier of fact fairly to resolve conflicts in the testimony, to

weigh the evidence, and to draw reasonable inferences from basic

facts to ultimate facts". Jackson v. Virginia, 443 U.S. 307, 319

(1979).

Accordingly, McCord and Haley's sufficiency of the evidence

challenges fail if a rational trier of fact could have found that

the Government proved the essential elements of the crime charged

beyond a reasonable doubt. United States v. Webster, 960 F.2d

1301, 1307-08 (5th Cir.), cert. denied, ___ U.S. ___, 113 S. Ct.

355 (1992). Toward that end, "[w]e must view the evidence in the

light most favorable to the verdict, accepting all credibility

choices and reasonable inferences made by the jury". United States

v. Gardea-Carrasco, 830 F.2d 41, 43 (5th Cir. 1987) (footnote

omitted). Moreover, "[i]t is not necessary that the evidence

exclude every reasonable hypothesis of innocence or be wholly

inconsistent with every conclusion except that of guilt .... A

jury is free to choose among reasonable constructions of the

evidence". United States v. Bell, 678 F.2d 547, 549 (5th Cir.

1982), aff'd, 462 U.S. 356 (1983). Finally, "our review remains

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the same whether the evidence is direct or circumstantial". United

States v. Cardenas, 9 F.3d 1139, 1156 (5th Cir. 1993), cert.

denied, 114 S. Ct. 2150 (1994).

For a conspiracy in violation of 18 U.S.C. § 371, the

Government must prove "that the defendant entered into an agreement

with at least one other person to commit a crime against the United

States and that any one of these conspirators committed an overt

act in furtherance of that agreement". United States v. Chaney,

964 F.2d 437, 449 (5th Cir. 1992) (emphasis in original). "The

government must also prove that the defendant knew of the

conspiracy and voluntarily became part of it". Id. Haley and

McCord were charged with conspiring to violate § 1954, which

provides in pertinent part:

Whoever being--

(1) [a] ... trustee ... of any employee

... benefit plan; or

(2) an officer ... of an employer ...

whose employees are covered by such plan; or

....

(4) a person who, or an officer ... of an

organization which provides benefit plan

services to such plan

receives or agrees to receive or solicits any fee,

kickback, commission, gift, loan, money, or thing

of value because of or with intent to be influenced

with respect to, any of his actions, decisions, or

other duties relating to any question or matter

concerning such plan or any person who directly or

indirectly gives or offers, or promises to give or

offer, any fee, kickback, commission, gift, loan,

money, or thing of value prohibited by this

section, shall be fined not more than $10,000 or

imprisoned not more than three years, or both:

Provided, That this section shall not prohibit the

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payment to or acceptance by any person of bona fide

salary, compensation, or other payments made for

... services actually performed in the regular

course of his duties as such ... officer, trustee,

... or employee of such plan, employer, ... or

organization providing benefit plan services to

such plan.

18 U.S.C. § 1954 (emphasis in original).

Haley and McCord contend that the Government failed to prove,

as required by § 1954, that stock was transferred by Haley to

McCord "because of" McCord's actions or decisions as an ESOP

trustee; and that the section's bona fide compensation exception is

applicable.2 The facts underlying the charged conspiracy are as

2

McCord and Haley claim also that "Wharton's Rule" prohibits

their conspiracy convictions because they were the only two named

co-conspirators and were acquitted of substantive violations of §

1954, the only object of the conspiracy. "Wharton's Rule states

that `[a]n agreement by two persons to commit a particular crime

cannot be prosecuted as a conspiracy when the crime is of such a

nature as to necessarily require the participation of two persons

for its commission'". United States v. Brown, 7 F.3d 1155, 1162

n.6 (5th Cir. 1993) (quoting 1 R. Anderson, Wharton's Criminal Law

and Procedure, § 89, at 191 (1957)). Wharton's Rule applies only

when "it is impossible under any circumstances to commit the

substantive offense without cooperative action". Id. at 1163

(internal quotation marks and citation omitted; emphasis in

original).

Because this issue is being raised for the first time on

appeal, we review it only for plain error. United States v.

Rodriguez, 15 F.3d 408, 414-17 (5th Cir. 1994). There is none;

even assuming that McCord and Haley satisfy the first step in plain

error analysis, that there was an error, that error is not "plain"

("clear" or "obvious"). Id. at 415. In short, it is most

questionable whether the rule applies to § 1954, in the light of,

inter alia, the section's legislative history reflecting that the

purpose of § 1954 was to protect plan participants and their

dependents, interstate commerce, and the national public interest.

See 1962 U.S.C.C.A.N. 1532, 1532-39, 1549. See Iannelli v. United

States, 420 U.S. 770, 784 (1975) ("[u]nlike the consequences of the

classic Wharton's Rule offenses, the harm attendant upon the

commission of the substantive offense [proscribed by § 1954] is not

restricted to the parties to the agreement.") Accordingly, because

the error (assumed) is not plain, we need proceed no further in our

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follows. (Haley did not testify; McCord did.)

During the early 1980s, McCord and Haley worked together at

Red Bird Bank in Dallas. In 1985, several ABC directors asked

Haley to invest in ABC, which had been operating under a cease and

desist order since 1984. Haley did so, was elected chairman of

ABC's board, and brought in McCord as executive vice president.

McCord became president in April 1986; and that December, ABC

raised $362,761 through a public stock offering.3 By 1987, it had

become profitable.

In June 1987, Red Bird Bank loaned $78,040 to the corporation

owned by Haley, Leisure Valley, Inc. The loan was secured by

80,000 shares of ABC stock and personally guaranteed not only by

Haley, but also by McCord.4 That December, the loan was renewed

for a year, with the amount increased to $162,040. It was secured

by 175,000 ABC shares and again personally guaranteed by Haley and

McCord.

In late 1987 or early 1988, after McCord attended a seminar at

which Banking Consultants of America (BCA) made a presentation

about employee stock ownership plans (ESOPs),5 he and Haley decided

analysis.

3

At $1.00 per share, 362,761 were sold; McCord purchased

40,000.

4

Neither side advances why McCord personally guaranteed the

loan to Haley's corporation, nor is there any explanation in the

record.

5

Charles Bullock, a tax lawyer who had been employed by BCA,

testified that an ESOP is a retirement plan, much like a profit-

sharing plan, except that it invests primarily in employer

securities; and that an ESOP can be used for the purposes of

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to establish one at ABC; and McCord retained BCA in July 1988 to do

so.6 BCA advised ABC that the ESOP could not pay more than fair

market value for stock; and as it recommended, ABC retained an

independent appraiser. An appraisal was necessary because there

was no active market for ABC stock. The stock was appraised at

$2.35 per share as of July 1, 1988.

Prior to September 20, 1988, Haley owned 170,000 shares of ABC

stock; his corporation, Leisure Valley, 174,000; and McCord,

105,000.7 On September 20, Leisure Valley transferred 70,194

shares to McCord -- 34,477 by one certificate and 35,717 by

another. McCord claims that he paid $81,020 for the 34,477 shares

(at the $2.35 appraised value), but received the 35,717 shares as

a gift from Haley for making ABC profitable. On the other hand,

Haley maintains that, as a reward for McCord's work, he sold McCord

all 70,194 shares at a discount for $80,723.10 ($1.15 per share).8

employee motivation, retirement benefits, raising capital as a

takeover defense, and creating a market for stock. An ESOP is

created by resolution of the sponsoring employer's board of

directors, and the ESOP's trustees are responsible for its

operations. In an ESOP, a trust owns shares of the employer's

stock for the benefit of the employees. The stock is contributed

to the plan at no cost to the employees, and ESOPs may acquire

stock by purchasing it from either the sponsoring employer or

shareholders.

6

McCord testified that attracting good people to work for ABC

was difficult; that once he had trained employees, he lost them to

other banks; and that the ESOP was to motivate employees and give

them an incentive to stay with ABC.

7

There were approximately 815,000 shares of ABC stock issued,

with approximately 150 shareholders.

8

In a pre-indictment interview, Haley stated that he sold the

stock at a discount because he wanted to recognize McCord's hard

work and success at ABC. And, on its income tax return, Leisure

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The ESOP trust agreement was executed ten days later --

September 30, 1988. That same day, McCord and Haley, as trustees

of the ESOP, borrowed $162,040 from Red Bird Bank on behalf of the

ESOP, so that it could purchase stock.9 As required by law, the

loan was non-recourse; for collateral, Red Bird Bank could look

only to the stock purchased by the ESOP. Red Bird Bank required

McCord and Haley to pledge their remaining ABC stock and to

personally guarantee the ESOP loan.10

Eleven days later (October 11), McCord sold to the ESOP 34,477

shares of the ABC stock he had received on September 20. The sale

was at the appraised value of $2.35 per share; $81,020 was paid.

(As discussed, this equals the amount paid by McCord to Haley's

corporation.) The ESOP also purchased the same number of shares of

ABC stock (34,477) from Leisure Valley for $81,020 (appraised

value).11 That same day, in payment for the stock transferred to

Valley reported the entire transfer to McCord as a sale. At $1.15

per share, 70,194 would cost $80,723.10; but, 34,477 at $2.35 per

share totals $81,020.95 (the amount McCord paid). Although the

Government's witnesses, who reviewed the pertinent records, agreed

with Haley's position, the Government does not explain why McCord

paid $81,020, rather than $80,723.10.

9

Bullock testified that in a significant number of ESOPs the

stock is purchased with borrowed funds.

10

Red Bird Bank was eligible for a 50% tax exemption on the

interest it earned on the ESOP loan.

11

McCord testified that, originally, the ESOP was going to

purchase the stock only from Haley; that Haley asked him if he

wanted to sell some of his shares, but he was not interested

because he felt that the stock was appreciating and was looking to

it as a retirement plan; and that, because Haley wanted the bank

employees to believe that the ESOP stock was coming from both of

them and did not want to usurp McCord's authority by being the only

contributor of shares to the ESOP, Haley asked McCord to buy the

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him on September 20 by Haley's corporation, McCord deposited in the

account of that corporation, Leisure Valley, his $81,020 from his

sale to the ESOP. In turn, Leisure Valley used the proceeds from

the two sales to the ESOP (its and McCord's) to pay off Leisure

Valley's December 1987 $162,040 loan from Red Bird Bank, which was

to become due that December, and had been personally guaranteed by

Haley and McCord.

In August 1990, the Office of the Comptroller of the Currency

declared ABC insolvent, after requiring it to accept liability for

the ESOP loan and to charge off other loans.12

1.

"Under § 1954, a defendant may be convicted of receiving a

[thing of value] (a) `because of' or (b) `with intent to be

influenced with respect to' any actions or decisions relating to

the plan involved". United States v. Pieper, 854 F.2d 1020, 1024

(7th Cir. 1988) (emphasis in original). The Government proceeded

under the "because of" prong. "[I]t is not necessary that a

defendant have had actual ability to control investment decisions

of a [plan] so long as, because of his status, he had ostensible

power over decisions regarding the [plan]". Id. at 1025. As

noted, Haley and McCord contend that the Government failed to prove

that they conspired to transfer ABC stock to McCord "because of"

his position as an ESOP trustee; that, instead, the stock was a

stock from him and then sell it to the ESOP.

12

It appears that ABC was required to accept liability for the

ESOP loan because of ABC's monthly $3,000 payments to the ESOP for

its use to pay the note.

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reward for McCord's work at ABC, an entity separate from the ESOP.

In support, they note that the ESOP was not created until after the

transfer.

There is sufficient evidence that McCord and Haley agreed to

transfer ABC stock to McCord "because of" his authority as an ESOP

trustee to decide how, and from whom, the ESOP would acquire stock.

They decided to establish an ESOP, the only type of employee

benefit plan which allows trustees to sell their shares to the

plan,13 rejecting other types of benefit plans.14 They elected to

serve as trustees and, as such, had authority to decide how much

stock the ESOP would purchase and from whom. Although no specific

amount of stock was required to fund the ESOP, McCord and Haley

decided that it would purchase 68,954 shares at $2.35 per share,

for a total of approximately $162,04015 -- the amount of Leisure

Valley's (Haley's corporation) note at Red Bird Bank, which they

13

The ESOP trust agreement gave the trustees power to enter into

transactions between themselves, as trustees, and the bank, or any

bank shareholder, for the purpose of acquiring or selling bank

stock. Government witnesses testified that it is not unusual, at

small, independent banks such as ABC, for bank officers to serve as

ESOP trustees, and that it is not unusual for ESOP trustees to sell

their stock to the ESOP. An attorney employed by BCA testified

that ERISA establishes two standards that apply when a "party in

interest" sells stock to an ESOP: (1) the party in interest can be

paid no more than adequate consideration for the stock, which is

generally the appraised fair market value; and (2) no one can earn

a commission on the sale. He testified further that, if those two

requirements are satisfied, there is nothing wrong with a trustee,

who also happens to be a major shareholder, officer, or director of

the bank, selling stock to an ESOP.

14

McCord testified that they rejected a 401K or a profit sharing

plan because they wanted to give the employees a vested interest in

the growth and performance of the bank.

15

At $2.35 per share, 68,954 totals $162,041.90.

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had personally guaranteed, and which was to become due

approximately three months later, in December 1988. Indeed, the

proceeds from the sales to the ESOP were used to pay off that loan.

Although Leisure Valley could have sold all 68,954 shares to

the ESOP, it instead sold only 34,477, transferring approximately

70,200 shares to McCord, who then sold to the ESOP approximately

half of those shares (the same amount as sold to the ESOP by

Leisure Valley). The Government introduced evidence that the ESOP

could have been funded with ABC treasury stock. In addition, other

shareholders owned stock which could have been purchased by the

ESOP, but Haley and McCord did not give them an opportunity to sell

their shares to it.16 Although the Government's witnesses testified

that there was no formal requirement that other shareholders be

notified of the ESOP's plans to purchase stock, BCA's president

testified that it would have been prudent for McCord and Haley to

notify the majority shareholders. It is true that McCord and Haley

sold their stock to the ESOP at the appraised value; but that price

16

Tully Shahan, one of the founding directors of ABC, testified

that, in 1988, or 1989, he talked to McCord about selling his

22,000 shares of ABC stock to ABC. McCord told him that ABC might

be interested in buying the stock at $1.25 per share, and did not

mention the July 1988 appraisal of $2.35 per share. Tom Schneider,

another founding director of ABC, testified that he owned 135,000

shares of ABC stock in 1988, but was not given an opportunity to

sell his stock to the ESOP.

Although both Shahan and Schneider testified that they would

not have been willing to sell their stock to the ESOP at $2.35 per

share if they had been required to guarantee the ESOP's $162,040

loan from Red Bird Bank, the director for the United States

Department of Labor Pension and Welfare Benefits Administration in

the Dallas region testified that there is no requirement that

persons who sell stock to an ESOP must guarantee any note in

connection with that transaction.

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was the maximum, or ceiling, that the ESOP could pay. There was

nothing to prevent the ESOP from purchasing shares from other

shareholders for less than the appraised price, had there been

willing sellers.17

The evidence strongly supports the inference that McCord and

Haley chose not to notify the other shareholders because they had

decided that the ESOP would purchase stock only from them, at the

appraised value. They benefited from the sales, inasmuch as there

was not an active market for the stock, and the proceeds were used

to pay off Leisure Valley's note at Red Bird Bank, which they had

personally guaranteed. (Although they also personally guaranteed

the ESOP loan from Red Bird Bank, they anticipated that the loan

would be paid by ABC's contributions to the ESOP. As noted, it

contributed $3,000 per month to the ESOP for that purpose.18)

The timing of the stock transfer also supports an inference

that it was "because of" McCord's authority as an ESOP trustee to

decide from whom the ESOP would purchase stock. McCord joined ABC

in 1985, and he testified that it had become profitable by 1987;

yet Haley waited until September 20, 1988 -- ten days before the

ESOP was established -- to transfer the stock to McCord, ostensibly

17

Bullock testified that the biggest abuse of an ESOP is selling

stock to it at an inflated price.

18

Bullock testified that when an ESOP borrows money, the loan is

repaid through contributions to the trust from the sponsoring

employer. McLeod, a tax lawyer and certified public accountant

with BCA, who drafted the documents for the ESOP loan, testified

that the only source of funds to repay the ESOP loan is

contributions from the sponsoring employer, and that the lender

relies on the employer to make contributions to the ESOP to enable

payment of the loan.

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to reward his past services in making ABC profitable. At the same

time, McCord sold 34,477 of the shares to the ESOP at the appraised

price.19

That the transfer occurred before the ESOP was formally

established (by ten days) is insignificant in light of the fact

that McCord and Haley exercised control over the ESOP at least as

early as July 1988, when ABC retained BCA.20 Although the ESOP

trust agreement was not signed until September 30, 1988, ABC's

board adopted a resolution making the ESOP effective January 1,

1988. Moreover, McCord testified that, prior to the signing of the

ESOP documents, it had been agreed who the trustees would be, where

the funding would come from, and how many shares the ESOP would

purchase.

In sum, the evidence supports the jury finding that Haley and

McCord agreed that Haley, through Leisure Valley, would transfer

ABC stock to McCord "because of" his position as an ESOP trustee,

including his authority to make decisions about the manner in which

the ESOP was funded. Accordingly, the standard for affirming the

jury's verdict is met: a rational trier of fact could have found

19

As stated, McCord claims that he paid the appraised value of

$2.35 per share for the 34,477 shares, and received the 35,717

shares as a gift from Haley for his efforts in making ABC

profitable; Haley, that he rewarded McCord by selling him all

70,194 shares for only $1.15 per share.

20

McCord testified that he discussed the ESOP with the ABC board

in July 1988.

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that the essential elements for a conspiracy were proved beyond a

reasonable doubt.21

2.

In the alternative, McCord and Haley contend that the evidence

establishes that the stock transfer to McCord falls within § 1954's

"bona fide compensation" exception to criminal liability. As

quoted earlier, that exception permits

the payment to or acceptance by any person of bona

fide salary, compensation, or other payments ...

for services actually performed in the regular

course of his duties as ... officer, trustee, ...

or employee of such plan, employer, ... or

organization providing benefit services to such

plan.

18 U.S.C. § 1954.

The Government interprets the exception to apply only to

compensation (to include "other payments") for services rendered

for the ESOP, and therefore maintains that it is inapplicable,

because Haley and McCord both concede that the stock transfer was

not for services that McCord performed for the ESOP. We agree,

however, with Haley and McCord that the exception is not limited to

21

Several circuits have held that proof of specific intent is

not required under the "because of" prong of § 1954. United States

v. Soares, 998 F.2d 671, 672-74 (9th Cir. 1993), cert. denied, ___

U.S. ___, 114 S. Ct. 927 (1994); United States v. Pieper, 854 F.2d

1020, 1024-26 (7th Cir. 1988); United States v. Romano, 684 F.2d

1057, 1063-64 (2d Cir.), cert. denied, 459 U.S. 1016 (1982); United

States v. Friedland, 660 F.2d 919, 925-27 (3d Cir. 1981), cert.

denied, 456 U.S. 989 (1982). Haley contends that, irrespective of

the intent required for violation of § 1954, the Government failed

to prove that he specifically intended to agree to violate § 1954,

as required for proof of conspiracy under 18 U.S.C. § 371. We

disagree. As shown above, there was ample circumstantial evidence

that Haley and McCord specifically intended to agree to transfer

ABC stock to McCord because of his actions or decisions as a

trustee.

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services performed for the ESOP; its plain language indicates

otherwise. Among other things, the exception applies to "bona fide

salary, compensation, or other payments" (payments) to an officer,

such as McCord, "for services ... performed in the regular course

of his duties as ... officer ... of [an] employer", such as ABC,

"whose employees are covered by [a] plan". Nevertheless, we do not

agree that Haley and McCord qualify for the exception; their

interpretation overlooks the requirement that the payments be "bona

fide".22

Although § 1954 does not define "bona fide", we can easily

discern its intended meaning by reading it as a whole. See, e.g.,

N. Singer, 2A Sutherland Statutory Construction § 46.05, at 103

(5th ed. 1992) ("each part or section [of a statute] should be

construed in connection with every other part or section so as to

produce a harmonious whole"; "it is not proper to confine

interpretation to the one section to be construed") (footnotes

omitted). Section 1954 first describes what is prohibited -- inter

alia, the receipt of a thing of value "because of" any actions or

decisions relating to the benefit plan. It then describes, in the

exception, what is not prohibited -- inter alia, the payment or

acceptance of "bona fide salary, compensation, or other payments

22

As noted, the exception is not limited to salary or

compensation; it includes "other payments". Accordingly, although

McCord was not an employee of the corporation that transferred

stock to him, so that the transfer was not salary or compensation

as those terms are understood in their normal employer/employee

sense, the transfer was a form of "other payments" that might

qualify for the exception. But, as discussed infra, the exception

is satisfied only if the "salary, compensation, or other payments"

are "bona fide".

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... for services actually performed in the regular course of ...

duties". (As noted, this includes duties as an officer of the

employer providing the ESOP.) When the exception is read in

context with the remainder of § 1954, it is clear (indeed, most

obvious) that the exception does not apply to payments to an

officer of an employer providing an ESOP or to a trustee of the

ESOP "because of" his actions or decisions relating to the plan if

they are not "in the regular course of his duties". In other

words, payments given or received with that motivation are not

"bona fide" within the meaning of the exception.23

As discussed, there was ample evidence that Haley's stock

transfer to McCord ("other payments") was not motivated by McCord's

performance as a bank officer (bona fide), but because, as an ESOP

trustee, he had the authority to make decisions with respect to the

manner in which the ESOP would be funded. Accordingly, the

transfer does not qualify for § 1954's exception.24

23

Our reading is consistent with the jury charge: "bona fide"

was defined as "in good faith, exclusive of fraud or deceit".

Neither Haley nor McCord challenge that definition.

24

Haley contends that the district court erred by denying his

motion to dismiss the indictment, because the Government failed to

charge that his conduct did not fall within the exception. Prior

to trial, he did not move to dismiss the indictment on this ground;

he did so during, and after, trial. Fed. R. Crim. P. 12(b)(2) and

(f) provide that objections based on defects in the indictment,

other than those attacking jurisdiction or claiming that the

indictment fails to charge an offense, are waived if not made prior

to trial. See, e.g., United States v. Mouton, 657 F.2d 736, 739

n.3 (5th Cir. 1981). Because Haley's objection is that the

indictment fails to charge an offense, it was not waived.

In any event, the objection fails. "Generally, a statutory

exception to an offense need not be alleged in the indictment and

the burden of proving compliance with the exception is upon the

- 17 -

B.

McCord and Haley each challenge the jury instructions on

conspiracy. McCord contends that the district court erred by

giving the Government's requested instruction on the § 1954

exception; Haley, that the court erroneously refused his requested

instructions on his defensive theory, and erroneously instructed

that the evidence proved a conspiracy if it showed that the

defendants "or either of them" knew the unlawful purpose of the

agreement and willfully joined the conspiracy.

"We afford the district court substantial latitude in

formulating its instructions, and we review a district court's

refusal to include a defendant's proposed jury instruction for

abuse of discretion". United States v. Chaney, 964 F.2d at 444.

In applying this standard, we review the charge "as a whole to

determine whether that instruction fairly and accurately reflects

the law and covers the issues presented in the case". Id.

"[W]here the contention is that the district court has refused to

give an instruction, we determine whether the requested

instruction: (1) is a correct statement of the law; (2) was

defendant". United States v. Outler, 659 F.2d 1306, 1309 n.3 (5th

Cir. 1981), cert. denied, 455 U.S. 950 (1982). Section 1954 is not

one of those "rare instances [where] an exception can be so

necessary to a true definition of the offense that the elements of

the crime are not fully stated without the exception". Id. at

1310; see also Sutton v. United States, 157 F.2d 661, 665-66 (5th

Cir. 1946) ("In an indictment ..., it is not necessary to negative

the matter of an exception made by a proviso or other distinct

clause in the statute, whether in the same section or elsewhere;

but, if the exception itself is incorporated in the definition of

the offense so that the elements of the crime are not fully stated

without the exception, then it must be negatived".) (footnote

omitted).

- 18 -

substantially given in the charge as a whole; and (3) concerns an

important point in the trial, the omission of which seriously

impaired the defendant's ability to present a given defense

effectively". Id.

1.

As noted, the district court gave the Government's requested

instruction on § 1954's exception. After stating the language from

§ 1954, to include the exception, it provided in part that

bona fide salary, compensation or other payments

means that the salary, compensation or other

payments w[ere] received in good faith, exclusive

of fraud or deceit. An administrator, officer,

trustee, custodian, counsel, agent or employee of

such plan, employer, employee organization or

organization providing benefit plan services to

such plan must disclose the salary or compensation,

that he is receiving, to qualify for the bona fide

compensation exception.25

This portion of the instruction was based on United States v.

Schwimmer, 924 F.2d 443 (2d Cir.), cert. denied, ___ U.S. ___, 112

S. Ct. 55 (1991). The defendant in Schwimmer was an investment

advisor to pension plan trustees, and was convicted of violating §

1954 for failing to report commissions from financial institutions

for the placement of plan funds. Id. at 447-48. The jury charge

in Schwimmer defined "`bona fide' to mean `in good faith or without

deceit or fraud'"; and, in response to a jury request for

clarification, it was instructed "that a fiduciary must disclose

the actual commission he is charging in order to qualify for the

25

As noted, the language of the exception preceded this part of

the instruction. It was read to the jury twice: with respect to

count two and to count three (the § 1954 substantive charges).

- 19 -

bona fide compensation exception". Id. at 448. The Second

Circuit, rejecting Schwimmer's challenge to the instruction,

stated:

"Bona fide" literally means in good faith,

exclusive of fraud or deceit. It cannot be said

that one who receives a commission from a financial

institution for placing employee benefit plan

funds, without disclosing to the plan the actual

commissions received, is acting in good faith ....

Because [§] 1954 uses broad language to protect

plan beneficiaries from dishonest or unfaithful

fiduciaries, it seems clear that the statute was

meant to reach Schwimmer's intentional failure to

inform the trustees ... that he was extracting a

commission from the placement of their investments.

Id.

As noted, McCord does not contend that the instruction

erroneously defined "bona fide"; nor does he contend specifically

that it was error to instruct that good faith requires disclosure.

Instead, he asserts that the instruction based on Schwimmer is

inapplicable because he received the 35,717 shares from Haley,

through Leisure Valley, as compensation for his past services at

ABC, not as compensation for his services on behalf of the ESOP,

unlike the defendant in Schwimmer, whose commissions were directly

related to his activities for the pension plan.

First, the jury was instructed on McCord's theory of defense.

Second, McCord's position is based on an erroneous interpretation

of the exception. As discussed, compensation paid to or received

by a trustee because of his actions or decisions with respect to

the plan that are not performed in the regular course of his duties

is not "bona fide" within the meaning of § 1954. Therefore, McCord

- 20 -

has not demonstrated that the district court abused its discretion

through its exception instruction.

2.

The district court refused to instruct the jury on Haley's

defensive theory -- that he complied with all of the laws governing

ESOPs, and that he sold the stock to McCord at a discount as

compensation for his services at ABC. Because the indictment

contained references to ERISA and terms defined by it, Haley's

requested instructions sought to submit other portions of ERISA "so

that the jury could understand `the rest of the story'". Haley

requested that the jury be instructed (1) that § 1954 does not

prohibit the payment of bona fide compensation to a bank employee

for services actually performed; (2) on the fiduciary duties of an

ESOP trustee under ERISA; (3) that, under ERISA, an ESOP trustee

has no duty to inform shareholders of a proposed stock purchase by

the ESOP; (4) on the good faith provision of ERISA; and (5) on a

summary of conduct permitted and prohibited by ERISA. He maintains

that the charge, which contained instructions on the bona fide

compensation exception for the substantive violations of § 1954

charged in counts two and three, but did not contain them with

respect to the conspiracy charged in count one, misled the jurors

to believe that they could not apply the exception to that count.

He maintains that, because the charge on the conspiracy count

lacked both the statutory exception and the instructions explaining

the relevant portions of ERISA, the jury lacked any information

about his theory of defense on the conspiracy count.

- 21 -

We disagree. As noted, the jury was instructed twice on the

exception (for counts two and three). Considering the instructions

as a whole, there is no basis for Haley's assumption that the jury

was misled to believe that the exception was inapplicable to the

conspiracy charge. And, Haley was charged with a criminal

conspiracy to violate § 1954; he was not charged with civil

violations of ERISA. The requested instructions, pertaining to

civil violations of ERISA, do not constitute a legally sufficient

defense to the conspiracy charge. See United States v. Hammons,

566 F.2d 1301, 1303-04 (5th Cir.), vacated on other grounds, 439

U.S. 810 (1978) (because facts of case did not demonstrate a legal

defense to the crime charged, trial court did not err in refusing

to instruct the jury on defendant's defense). Accordingly, the

district court did not abuse its discretion in denying Haley's

requested instructions.

3.

Haley maintains that the instruction on the elements of

conspiracy, by including the words "or either of them", erroneously

allowed the jury to convict him without requiring it to find that

he had the requisite intent to be a conspirator. The instruction

provided in part:

[Section 371] makes it a crime for anyone to

conspire with someone else to commit an offense

against the laws of the United States.

....

A conspiracy is an agreement between two or

more persons to join together to accomplish some

unlawful purpose. It is a kind of partnership in

crime in which each member becomes the agent of

- 22 -

every other member. For you to find the

defendants, or either of them, guilty of these

crimes, you must be convinced that the government

has proved each of the following beyond a

reasonable doubt.

First that two or more persons made an

agreement to commit the crime of [violating § 1954]

....

Second, that the defendants, or either of

them, knew the unlawful purpose of these agreements

and joined in it willfully, that is, with the

intent to further the illegal purpose.

And, third, that one of the conspirators,

during the existence of the conspiracy, knowingly

committed at least one of the overt acts described

in the indictment in order to accomplish some

object or purpose of the conspiracy.

(Emphasis added.)

Haley takes the words "or either of them" out of context.

That language, used for the second element of conspiracy, merely

mirrors the preceding language used for the definition of

conspiracy. It informed the jury that a finding of guilt as to one

of the defendants did not require a finding of guilt as to the

other.

In any event, "the presence of an imprecise or misleading

statement within the jury instruction does not by itself entitle

defendants to a reversal. Reversible error exists only if the jury

charge, considered as a whole, misled the jury as to the elements

of the offense". United States v. Kington, 875 F.2d 1091, 1098

(5th Cir. 1989). Even assuming that the challenged language was

misleading, the charge, considered as a whole, would not have

- 23 -

permitted the jury to convict Haley unless it found that he had the

requisite knowledge and intent to join the conspiracy.26

C.

In addition to challenging the sufficiency of the evidence for

conspiracy, McCord contests it for his convictions for false

entries, misapplication of funds, unlawful participation, and

filing a false tax return. In this and the next three parts, we

deal with those claims. Again, they present a classic example of

why our review of a jury verdict is most narrow.

Concerning an air conditioner, McCord was convicted for

making, or causing to be made, false entries in ABC's records, in

violation of 18 U.S.C. § 1005. The Government had to prove that:

"(1) an entry made in bank records is false; (2) [McCord] made the

entry or caused it to be made; (3) [he] knew the entry was false at

the time he ... made it; and (4) [he] intended that the entry

injure or defraud the bank or public officers". United States v.

Chaney, 964 F.2d at 448.27 "The government need not prove intent

to cause the bank injury; all that is required is that the

26

Obviously, not having found error with respect to any of

Haley's contentions, we reject his assertion that the cumulative

effect of multiple errors requires reversal of his conviction.

27

In relevant part, 18 U.S.C. § 1005 makes it a crime to

make[] any false entry in any book, report, or

statement of such bank, ... with intent to injure

or defraud such bank, ... or to deceive any officer

of such bank, ... or the Comptroller of the

Currency, or the Federal Deposit Insurance

Corporation, or any agent or examiner appointed to

examine the affairs of such bank, ... or the Board

of Governors of the Federal Reserve System ....

- 24 -

defendant intended to defraud one or more of the bank's officers,

auditors, examiners, or agents". Id. at 449.

Control Temp installed two air conditioning units at McCord's

residence in late 1987. In mid-1989, he told Dan Peterson with

Control Temp that one of the units was defective; and Peterson

replied that he would replace it when the renovations on McCord's

home were completed. They were completed that June.

In August 1989 there was a potential tenant for a house owned

by ABC, but it was missing an air conditioner. Therefore, McCord

asked Control Temp to provide a unit. Peterson testified that

McCord asked him what it would cost to install at ABC's house a

unit from McCord's residence and to install a new unit at his

residence; that he gave McCord the price; that "we did it"; and

that McCord told him to "send the bill to the bank".

ABC received an invoice from Control Temp for $2,950.87.

Peterson testified that the price included removing the unit from

McCord's residence, installing it at ABC's house, and installing a

new unit at McCord's residence.28 Of critical importance, Peterson

testified further that, if he had not had to make the "change-out"

from McCord's residence, he would have charged $300-400 less to

install a new unit at ABC's house.

The invoice does not reflect, however, that a new unit was

installed; it simply states, "installed 2.0 ton Janitrol heat

pump", and lists the installation address as that of the ABC house.

28

It is clear from Peterson's testimony and the amount of the

invoice that part of that amount was for the purchase of a new

unit.

- 25 -

Sylvia Owens, ABC's vice president, who was responsible for the

"other real estate owned" property files, testified that the

invoice caused her to believe that a new unit had been installed at

ABC's house. There was proof that the used unit at McCord's home

was worth less than the new unit substituted for it.

1.

McCord maintains that the entries were literally true. "[A]n

entry cannot be `false' within the meaning of [§ 1005] when it

correctly reflects the transaction and was so intended." United

States v. Hughes, 726 F.2d 170, 172 (5th Cir. 1984) (internal

quotation marks and citation omitted). But, "[t]he omission of

material information, as well as actual misstatements, qualifies as

a false entry under 18 U.S.C. § 1005". Chaney, 964 F.2d at 450

n.39.

Obviously, the evidence is more than sufficient to prove that

McCord made a false entry through a material omission, by

concealing that ABC was paying for both a new unit at his residence

and the installation of his used unit at ABC's house. Neither the

invoice nor ABC's books and records reflect that McCord's used

unit, worth less than a new unit, was installed at ABC's house, or

that a new unit was installed at McCord's residence, or that the

invoice was greater because of the cost of the work in changing out

the units. As a result, ABC's books did not accurately reflect the

bank's condition.

- 26 -

2.

Claiming that the Government failed to prove that he approved

the invoice for payment, McCord contends that the evidence was

therefore insufficient to prove that he "made or caused to be made"

the entries.

The invoice has notations by Sheila Cadena, an ABC officer,

indicating that entries of $1,634.06 and $1,316.81 were to be made

in ABC's "other real estate owned" expense and asset accounts,

respectively, totaling $2,950.87 (the amount of the invoice); and

the Government introduced evidence that the two entries were made

on ABC's books. Cadena testified that "[t]hose account numbers

would have come from Sylvia Owens or Mr. McCord[,] I can't remember

which one"; nor could she recall who made the entries in ABC's

records. And, McCord testified that he did not recall giving

instructions as to the amounts to be entered on the account

records.

Owens testified that she had the authority to approve bills

for payment and frequently did so, but that she was on vacation

when the unit was installed and the bill paid. McCord testified

that he saw the invoice for the first time during trial

preparation; that he always placed his initials on an invoice when

approving it for payment; that his initials do not appear on the

invoice; that any bank officer (Owens, Cadena, Joe Nieto, or

himself) had the authority to approve bills for payment; and that,

had he seen the invoice, he probably would have authorized payment

- 27 -

because it was "exactly correct", and he saw no problem with

handling the transaction that way.29

Cadena testified, however, that, when ABC received the

invoice, she placed it in the accounts payable folder and gave the

folder to McCord for approval by placing it on his desk. A copy of

the cancelled check was introduced into evidence, reflecting that

the invoice was paid.

In sum, the evidence was sufficient for the jury to find that

McCord caused the entries to be made.

D.

Again concerning the air conditioner, McCord asserts that the

Government failed to prove that he willfully misapplied bank funds,

in violation of 18 U.S.C. § 656, because there was no evidence that

he acted with the intent to defraud or injure the bank. This is

one of the several elements of proof. United States v. Kington,

875 F.2d 1091, 1100 (5th Cir. 1989).30

As discussed, there was sufficient evidence for the jury to

find that McCord intended to defraud ABC by having a used unit from

his home installed at ABC's house and a new unit installed at his

29

McCord testified that he believed that Peterson was replacing

the unit at his house under warranty, and that had a bill been

submitted to him for the work done at his house, he would have paid

it.

30

18 U.S.C. § 656 makes it a crime for

an officer, director, agent or employee of, or

connected in any capacity with any ... insured bank

... [to] willfully misappl[y] any of the moneys,

funds or credits of such bank ....

- 28 -

home, telling the installer to "send the bill to the bank", and

approving the invoice for payment.

E.

For a second violation of § 1005, McCord was convicted for

unlawfully receiving $17,000 of the proceeds of a $45,000 loan from

ABC to his brother-in-law, Scott Finney. Under that section, it is

also unlawful to receive, directly or indirectly, any money or

other benefit through any transaction or other act of a financial

institution, with intent to defraud the institution.31 Among other

things, the jury was instructed that a § 1005 violation required

proof that McCord received money directly or indirectly through a

loan from ABC, and did so with the intent to defraud ABC. A B C

financed Finney's subcontracts at an air base; but when Finney

approached McCord about borrowing $45,000 from ABC, because he had

underbid his first jobs, McCord refused the loan. Finney then

asked McCord to personally loan the money; and McCord did so in the

amount of $22,000, drawing on his $25,000 line of credit at ABC.

31

Section 1005 provides, in relevant part:

Whoever with intent to defraud the United

States or any agency thereof, or any financial

institution ... participates or shares in or

receives (directly or indirectly) any money,

profit, property, or benefits through any

transaction, loan, commission, contract, or any

other act of any such financial institution--

Shall be fined not more than $1,000,000 or

imprisoned not more than 30 years, or both.

18 U.S.C. § 1005.

- 29 -

Later, Finney received a $45,000 loan from ABC, with Owens

listed as the loan officer. The application stated that the loan's

purpose was "renewal of loans originally for wedding expenses and

to purchase inventory. New proceeds are to fund contract".32 From

the loan proceeds, $42,668.78 was deposited into the account of

Finney's company; from that account, $17,000 was then transferred

to Finney's personal account; Finney then transferred $17,000 to

McCord's account; and McCord used those funds to reduce his

indebtedness on his line of credit at ABC. Ultimately, the loan

was charged off, without Finney having made any payments on it.

1.

McCord contends, without citation to authority, that § 1005,

like 18 U.S.C. § 656 (misapplication of funds), requires proof of

a causal connection between the defendant's status as an officer

and the making of the loan. See United States v. McCright, 821

F.2d 226, 230 (5th Cir. 1987), cert. denied, 484 U.S. 1005 (1988)

(§ 656 requires proof that defendant, through his position at bank,

authorized or caused loan to be authorized). Accordingly, he

maintains that the Government was required "to prove that [he] was

the loan officer who caused the $45,000 line of credit to ...

Finney to be authorized".

We need not address whether § 1005 requires such proof,

because McCord neither requested an instruction on that element,

nor objected to the charge, which did not include that element.

32

ABC had loaned Finney $8,000 to purchase inventory and $3,000

for wedding expenses.

- 30 -

Because McCord failed to object, as required by Fed. R. Crim. P.

30, we review this issue only for plain error. See United States

v. Rodriguez, 15 F.3d 408, 414-17 (5th Cir. 1994). We need not

determine under the plain error analysis whether there was error,

or, if error, whether it was "plain", because, even assuming both,

we would decline to exercise our discretion to correct it, in that

McCord's substantial rights were not affected. There was evidence

that McCord caused the loan to be authorized. Owens testified that

she was Finney's "per se loan officer", but that McCord

participated in, and influenced, her decisions regarding approval

of Finney's loans. And Sandra Maldonado, an ABC employee when the

loan was made, testified that, pursuant to McCord's instructions,

she prepared the loan worksheet for the $45,000 loan to Finney.

2.

Contending that the Government failed to prove that he acted

with intent to injure or defraud ABC by receiving the $17,000,

McCord points out that Finney was current on all loans at ABC when

the loan was made and had never been in default. Nevertheless, the

loan application does not reflect that $17,000 of the proceeds were

for McCord rather than for the stated purposes. There was

sufficient evidence for the jury to find that McCord acted with the

requisite intent.

F.

McCord was convicted for subscribing a false tax return under

penalty of perjury, in violation of 26 U.S.C. § 7206(1). A §

7206(1) violation is established by proof that (1) the defendant

- 31 -

willfully made and subscribed to a return; (2) the return contained

a written declaration that it was made under penalties of perjury;

and (3) the defendant did not believe that the return was true as

to every material matter. United States v. Wilson, 887 F.2d 69, 72

(5th Cir. 1989).

IRS Special Agent Lange testified that McCord reported taxable

income of $29,251 for 1988, but failed to report approximately

$83,181, consisting of (1) a capital gain of $2,550 from the sale

of 3,000 shares of ABC stock purchased from Leisure Valley for

$1.15 per share and sold to the Alleys for $2.00 per share;33 (2)

a capital gain of $41,371 from the sale of 34,477 shares of ABC

stock purchased from Leisure Valley for $1.15 per share and sold to

the ESOP for $2.35 per share; and (3) other income of $39,260,

consisting of the difference between the purchase price of $1.15

per share and the value of $2.35 per share for the 35,717 shares of

ABC stock transferred to McCord by Leisure Valley.34

33

McCord testified that he discovered the sale to the Alleys

when preparing for trial, and admitted that he made a mistake by

not including it on his tax return. As noted infra, he asserts

that, because the amount was not substantial, this omission, alone,

is not violative of § 7206(1).

34

As stated, McCord claims that he paid for the 34,477 shares,

and received the 35,717 shares as a gift from Haley; Haley, that to

reward McCord, he sold him all 70,194 shares at a discount ($1.15

per share). As also noted, on its income tax return, Leisure

Valley reported the transfer of all 70,194 shares as a sale. Lange

testified that, assuming McCord had purchased the 34,477 shares for

$2.35 per share and had paid nothing for the 35,717 shares

(McCord's claim), there would have been no taxable gain on the sale

of the 34,477 shares to the ESOP (sold for same price as

purchased); but, with respect to the 35,717 shares (if not

considered a gift), there would have been a $6,000 gain on the

3,000 shares sold to the Alleys for $2.00 a share, and a $76,884

gain on the remaining 32,717 shares. Lange testified that, viewing

- 32 -

McCord contends that the evidence was insufficient to prove

that his income "was substantially in excess" of that reported,

asserting that the 35,717 shares from Leisure Valley were a non-

taxable gift and "could not logically be considered to be

compensation" because he was not employed by Leisure Valley35; that

there was no gain on the 34,477 shares he sold to the ESOP, because

he sold them for the price he paid for them; and that the

unreported gain from the sale of 3,000 shares of stock to the

Alleys is not substantial.36 McCord contends that the only rational

explanation for his wife's acquittal on the tax charge, despite

proof that she wrote the check to Leisure Valley to purchase the

stock, is that the jury concluded that the 35,717 shares were a

nontaxable gift.

But, McCord overlooks his testimony that his wife had nothing

to do with the preparation of the tax return and that he accepted

full responsibility for its contents. Because that testimony

the transaction in this manner, the effect on the tax owed would be

nearly the same as if all of the shares were purchased by McCord at

$1.15 per share.

35

With regard to the earlier discussed "bona fide compensation"

exception under § 1954, McCord's position on the tax charge may, at

first glance, seem inconsistent, because on the one hand, with

respect to the conspiracy charge, he claims that the 35,717 shares

received from Leisure Valley fall under that exception for his past

services at ABC; but, on the other hand, with respect to the tax

charge, he claims that they were a gift, maintaining that they

cannot be considered compensation because he was not employed by

Leisure Valley. The positions are not inconsistent; as discussed

supra, the exception includes not only salary and compensation, but

also "other payments made".

36

McCord calculates this gain as $3,000, using the donor's

(Leisure Valley's) basis of $1.00 per share and the sale price of

$2.00 per share.

- 33 -

provides an equally rational explanation for his wife's acquittal,

we refuse to speculate that the jury might have acquitted her

because it believed the 35,717 shares were a gift.

Moreover, there was overwhelming evidence that the 35,717

shares were taxable compensation. Agent Lange testified that a

"true gift" is not included in income, but that, if given as a

reward, compensation, perk, or fringe benefit, rather than out of

charity and kindness, with no disinterested or detached generosity

involved, "it may be called a gift, but it is compensation for

services. And compensation for services is always taxable". She

testified further that the relationship of the parties plays a

significant role in determining whether something is a gift; that

property given to a person by or for or on behalf of an employer

cannot be excluded from income; that gifts, in amounts greater than

$25, are not deductible on corporate tax returns; that, on its 1988

tax return, Leisure Valley reported the transfer of all 70,194

shares to McCord as a sale at $1.15 per share; and that, based on

her examination of Leisure Valley's return, it did not appear that

the transfer of 35,717 shares was a gift.

McCord testified that he received the ABC stock from Haley,

through Leisure Valley, because Haley knew that he did not "earn a

salary that was exorbitant" and that he had worked "late hours",

and recognized that, as a result of his efforts, he "had made the

stock go up in value"; that Haley gave him the shares because

Haley's "stock had increased [in value] due to ... my work in the

bank ... and he was giving me a gift". Similarly, McCord states in

- 34 -

his brief that the "35,717 shares of stock was a gift made by Mr.

Haley through Leisure Valley, Inc. as a reward for Mr. McCord's

past services at [ABC]". (Emphasis added.)

Likewise, bank examiner Robinson testified that McCord told

her that the stock was "for his services at the bank" and that it

"was Mr. Haley's way of compensating him" because "he had done a

good job at the bank". FBI Agent Alaniz testified that Haley

stated in an interview that he "wanted to reward Mr. McCord for

doing an outstanding job with the bank"; and that McCord stated in

an interview that the stock transferred to him from Leisure Valley

was a gift "to reward him for the hard work, [that] he had done,

during the years when the bank was struggling to be turned around".

The Government sustained its burden of proving that the 35,717

shares constituted taxable compensation rather than a nontaxable

gift. Accordingly, McCord's income for 1988 was substantially in

excess of that reported.

G.

Haley asserts that the district court abused its discretion by

denying his motions for severance, maintaining that he was

prejudiced by the spillover effect of overwhelming evidence of

McCord's dishonesty on counts unrelated to the ESOP conspiracy.

The foregoing review, in numbing detail, of the evidence underlying

the charges against Haley, and the more numerous charges against

McCord, provides a good backdrop for reviewing this contention. In

the light of McCord's actions for which he was convicted, it is

- 35 -

most understandable why Haley sought a severance. But, more is

required.

Rule 8(a) of the Federal Rules of Criminal Procedure

authorizes joinder of offenses which are "of the same or similar

character or are based on the same act or transaction or on two or

more acts or transactions connected together or constituting parts

of a common scheme or plan". Fed. R. Crim. P. 8(a). And, Rule

8(b) provides for the joinder of defendants in the same indictment

"if they are alleged to have participated in the same act or

transaction or in the same series of acts or transactions

constituting an offense or offenses". Fed. R. Crim. P. 8(b).

"[D]efendants may be charged in one or more counts together or

separately and all of the defendants need not be charged in each

count". Id. The conspiracy and substantive offenses charged in

counts one-three against McCord and Haley were based on the same

transaction -- the transfer of stock from Haley to McCord because

of McCord's position as an ESOP trustee. Accordingly, joinder was

proper under Rule 8.

On the other hand, Rule 14 offers relief from prejudicial

joinder; it states, in pertinent part:

If it appears that a defendant ... is

prejudiced by a joinder of offenses or of

defendants in an indictment ... or by such joinder

for trial together, the court may order an election

or separate trials of counts, grant a severance of

defendants or provide whatever other relief justice

requires ....

Fed. R. Crim. P. 14. "If joinder is proper in the first instance

under Rule 8, the denial of a motion for severance is reviewable

- 36 -

only for an abuse of discretion". United States v. Faulkner, 17

F.3d 745, 758 (5th Cir. 1994).

Generally, "persons who are indicted together should be tried

together". United States v. Arzola-Amaya, 867 F.2d 1504, 1516 (5th

Cir.), cert. denied, 493 U.S. 933 (1989). It goes without saying

that this is especially true when the defendants are charged with

the same conspiracy. United States v. McGuire, 608 F.2d 1028, 1031

(5th Cir. 1979), cert. denied, 446 U.S. 910 (1980). A "[s]everance

under [Rule] 14 is an appropriate remedy for a disparity in the

evidence only in the most extreme cases". United States v.

Harrelson, 754 F.2d 1153, 1175 (5th Cir.) (brackets in original;

internal quotation marks and citation omitted), cert. denied, 474

U.S. 908, 1034 (1985). Along that same line, "the mere presence of

a spillover effect does not ordinarily warrant severance".

Faulkner, 17 F.3d at 759 (internal quotation marks and citation

omitted). To demonstrate an abuse of discretion, Haley "must show

that: (1) the joint trial prejudiced him to such an extent that

the district court could not provide adequate protection; and (2)

the prejudice outweighed the government's interest in economy of

judicial administration". United States v. DeVarona, 872 F.2d 114,

120-21 (5th Cir. 1989). Haley must demonstrate "specific and

compelling prejudice". Faulkner, 17 F.3d at 759 (internal

quotation marks and citation omitted). He has not done so.

During both voir dire and trial, and in its charge, the court

instructed the jury to consider separately the charges against each

defendant. See Faulkner, 17 F.3d at 759 (noting that "[s]imilar

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instructions have been held sufficient to cure any possibility of

prejudice"); Arzola-Amaya, 867 F.2d at 1516 (instruction to

"consider each offense separately and each defendant individually

... sufficiently enabled the jury to `compartmentalize' such

evidence and prevent any `spillover' from tainting another

appellant's case"). Furthermore, the physical evidence was

designated so that the jury could easily sort that pertaining to

each of the counts and each of the defendants.37

Finally, the acquittal of each of the defendants on at least

one count reflects that the jury was able to sort and consider

separately the evidence applicable to each of the counts and each

of the defendants. See Faulkner, 17 F.3d at 759 (fact that "each

appellant was acquitted on one or more counts ... supports the

inference that the jury considered separately the evidence as to

each defendant and each count"). The district court did not abuse

its discretion in denying a severance.

H.

The Government concedes that the ex post facto clause, U.S.

Const. art. I, § 9, prohibits McCord's prosecution for money

laundering, because 18 U.S.C. § 1005, which he violated by making

the $17,000 deposit from the proceeds of the $45,000 ABC loan to

Finney on February 28, 1990, did not become a specified unlawful

activity under the money laundering statute, 18 U.S.C. §

37

The exhibit numbers relating to the ESOP were preceded by "E",

the tax exhibits by "T", the air conditioner exhibits by "A", the

bribery exhibits by "B" (as noted, McCord was acquitted of

soliciting kickbacks), and the Finney loan exhibits by "M".

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1956(c)(7), until nine months later, November 29, 1990.

Accordingly, we reverse McCord's conviction on that charge.

I.

McCord challenges four aspects of his sentence: calculation of

the amount of tax loss; increases in his offense level for both

abuse of a position of trust and more than minimal planning; and

denial of a reduction for acceptance of responsibility. "We will

uphold a sentence imposed under the Sentencing Guidelines so long

as it is the result of a correct application of the Guidelines to

factual findings which are not clearly erroneous". United States

v. Mora, 994 F.2d 1129, 1141 (5th Cir.), cert. denied, ___ U.S.

___, 114 S. Ct. 417 (1993).

1.

McCord contends that, for calculating his sentence on the tax

count, the amount of tax loss should have been based only on his

omission of the gain from the sale of 3,000 shares of ABC stock to

the Alleys. As discussed, he maintains that the only rational

explanation for his wife's acquittal on the tax count, and his and

Haley's acquittals for substantive violations of § 1954, is that

the jury concluded that the 35,717 shares were a nontaxable gift.38

We review the district court's amount of tax loss finding only

for clear error. See United States v. Charroux, 3 F.3d 827, 838

(5th Cir. 1993). Guideline § 2T1.3 is applicable to violations of

38

Obviously, our rejections of McCord's sufficiency of the

evidence challenges on his conspiracy and tax convictions fly in

the face of this contention and arguably render it unnecessary to

address this issue.

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26 U.S.C. § 7206(1), and provides in part that "the `tax loss' is

28 percent of the amount by which the greater of gross income and

taxable income was understated". U.S.S.G. § 2T1.3(1).

The probation officer calculated the loss as $23,290.92 (28%

of unreported income of $83,181.85). In finding the same amount of

unreported income, the district court implicitly found that the

35,717 shares were not a gift. As discussed supra, there is ample

evidence to support this finding; it is not clearly erroneous.

2.

The Guidelines provide for a two-level increase in the offense

level "[i]f the defendant abused a position of public or private

trust, or used a special skill, in a manner that significantly

facilitated the commission or concealment of the offense".

U.S.S.G. § 3B1.3. The commentary provides that "[t]he position of

trust must have contributed in some substantial way to facilitating

the crime and not merely have provided an opportunity that could as

easily have been afforded to other persons". Id., comment. (n.1).

"The application of § 3B1.3 is a sophisticated factual

determination reviewed under the clearly erroneous standard".

United States v. Fisher, 7 F.3d 69, 70 (5th Cir. 1993).

McCord challenges this increase, asserting that his position

as bank president did not facilitate the misapplication of funds

for the air conditioner, and there was no evidence that he approved

the invoice, instructed anyone to pay it, or signed the check.39

39

The district court found that McCord abused his position of

trust not only as to the air conditioner counts (false entries and

misapplication of funds), but also as to his participation in the

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But, he does not dispute that he occupied a position of trust.

And, that position significantly facilitated his ability to arrange

for ABC funds to be used for the installation of a new unit at his

house, and to arrange for false entries to be placed on ABC's

books. As discussed supra, there was evidence that the invoice was

placed on McCord's desk for approval, and paid by ABC. The

district court did not clearly err.

3.

"If the offense involved (A) more than minimal planning", the

Guidelines provide for a two-level increase in the offense level.

U.S.S.G. § 2F1.1(b)(2). For the offenses involving the air

conditioner (false entries and misapplication of funds), McCord

challenges this increase.

The Guidelines define "[m]ore than minimal planning" as "more

planning than is typical for commission of the offense in a simple

form". U.S.S.G. § 1B1.1, comment. (n.1(f)). "`More than minimal

planning' also exists if significant affirmative steps were taken

to conceal the offense". Id. "Whether ... a defendant engages in

proceeds of the $45,000 loan to Finney. McCord does not challenge

the position of trust adjustment as to the latter. Arguably, if

not obviously, the ruling on the Finney loan, alone, would be

sufficient to impose the increase. But, because we cannot say with

certainty that the abuse of trust ruling on the air conditioner

counts, even if erroneous, would be harmless error in light of the

similar ruling on the Finney loan, we must address the challenged

ruling. See Williams v. United States, ___ U.S. ___, 112 S. Ct.

1112, 1121 (1992) (remand not required "[i]f the party defending

the sentence persuades the court of appeals that the district court

would have imposed the same sentence absent the erroneous factor").

Among other things, the Government does not claim harmless error,

even though it notes that "[i]t does not appear that ... McCord

disputes the position of trust adjustment made as to count eight

[Finney loan]."

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more than minimal planning is a fact question reviewed under the

clearly erroneous standard". United States v. Barndt, 913 F.2d

201, 204 (5th Cir. 1990).

As discussed, McCord arranged to have ABC pay for the

installation of a new unit at his residence, and to have the used

unit from his residence installed at ABC's house. He took steps to

conceal the offense by causing false entries to be made on ABC's

books. The district court did not clearly err in finding that the

execution of this scheme involved more than minimal planning.

4.

The Guidelines provide for a two-level decrease in the offense

level of a defendant who "clearly demonstrates acceptance of

responsibility for his offense". U.S.S.G. § 3E1.1(a). McCord

maintains that he was entitled to this reduction because he

truthfully told the FBI about his conduct, voluntarily surrendered

to authorities after being charged, and voluntarily resigned as

president of ABC.

The Guidelines' commentary provides that, in determining

whether a defendant qualifies for the reduction, the court may

consider factors such as those urged by McCord. U.S.S.G. § 3E1.1,

comment. (n.1). But the adjustment "is not intended to apply to a

defendant who puts the government to its burden of proof at trial

by denying the essential factual elements of guilt" except in those

"rare situations" in which the defendant "exercises his

constitutional right to a trial ... to assert and preserve issues

that do not relate to factual guilt (e.g., to make a constitutional

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challenge to a statute or a challenge to the applicability of a

statute to his conduct)". U.S.S.G. § 3E1.1, comment. (n.2). Our

standard of review "is more deferential than the clearly erroneous

standard". United States v. Burian, 19 F.3d 188, 192 (5th Cir.

1994).

McCord put the Government to its burden of proof at trial, and

did not admit the essential factual elements of guilt. As one of

his witnesses at the sentencing hearing testified, McCord "has

never, to this minute, admitted he willfully did anything wrong".

The district court did not err in refusing the reduction.

III.

For the foregoing reasons, the judgment against Haley is

AFFIRMED; the judgment against McCord is AFFIRMED, except for his

money laundering conviction, which is REVERSED, resulting in his

sentence being VACATED, and his case REMANDED for resentencing

consistent with this opinion.

AFFIRMED IN PART; REVERSED, VACATED, and REMANDED IN PART

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